Introduction
Asset finance is a way for Australian small businesses to acquire new or used assets (like equipment, machinery, or vehicles) without paying the full cost up front. Instead, your business can spread payments over time – helping manage cash flow while getting the tools you need to grow. Whether you’re looking at equipment financing for small business needs or vehicle finance for SMEs, there are several financing options available. This guide will walk you through the major types of asset finance in Australia – including equipment loans, vehicle finance, leasing, hire purchase, and chattel mortgages – explaining how each works, their pros and cons, and which types of businesses typically benefit.
Equipment Finance (Equipment Loans)
Equipment finance usually refers to a loan or similar arrangement to purchase business equipment or machinery. Often, this takes the form of a secured equipment loan (sometimes called a chattel mortgage when the asset is used as collateral). After the loan is approved, your business buys and owns the equipment immediately, while the lender holds a mortgage over the asset as security.
In other words, you get the equipment up front and repay the lender over time, and once the loan is fully repaid you own the asset outright.
Pros: With an equipment loan, you own the asset from day one, so it appears on your balance sheet as a business asset. The loan is secured against the equipment, which often means lower interest rates compared to unsecured borrowing. You can typically claim tax deductions for the interest paid on the loan and for the asset’s depreciation (since the business owns the equipment).
Also, you may negotiate fixed repayments and even structure a balloon (final lump sum) payment at the end to reduce monthly costs and match your cash flow.
Cons: Because your business owns the equipment, you’re responsible for maintenance, insurance, and the asset’s resale value risk. The equipment will depreciate over time, tying up capital in a potentially depreciating asset. If you no longer need the equipment, you still have to continue paying off the loan or sell the asset to pay out the loan (the lender’s security means you cannot just walk away). Also, taking on a loan adds to your business’s liabilities, which could affect your borrowing capacity for other needs.
Best for: Equipment finance is ideal for businesses that need expensive machinery or tools for the long term and want ownership. For example, a construction company or manufacturer acquiring a new machine might use an equipment loan so they can eventually fully own a valuable asset. It’s also suitable if you want to take advantage of asset ownership benefits like depreciation deductions or government incentives (e.g. the instant asset write-off for eligible purchases).
Asset Finance for SMEs
A small business tradesman with his work vehicle, an asset often financed through vehicle finance options. Vehicles such as cars, vans, and trucks are critical assets for many small businesses – whether it’s a sales team’s cars or a tradie’s ute. Vehicle finance refers to financing options specifically for purchasing or using vehicles for your business. In Australia, the most popular form of business vehicle finance is a goods loan (which is essentially a chattel mortgage on the vehicle). Under a goods loan, your business owns the vehicle from the start of the loan term without having to tie up a large amount of capital, and the loan is secured against the vehicle. As with equipment loans, interest and depreciation may be tax-deductible if the vehicle is used for business purposes.
Other common vehicle financing methods include hire purchase and leasing (discussed below). For example, with a hire purchase, the bank or financier buys the vehicle and your business uses it while making instalments; once all repayments (and any final residual amount) are made, ownership transfers to you. With a lease, your business rents the vehicle for a period and returns it at the end (or sometimes has an option to purchase). There are also novated leases, which are special lease arrangements via salary packaging for employees’ cars – but for a typical small business owner looking to finance a company vehicle, a chattel mortgage (goods loan), standard lease, or hire purchase are the main options.
Pros: Vehicle financing allows your business to get needed cars or trucks without paying the full price upfront. As with equipment finance, a chattel mortgage or hire purchase on a vehicle lets you own the car (immediately or eventually) while spreading out the cost, and often comes with potential tax benefits (e.g. claiming interest and depreciation). If you opt for a lease, you’ll have a lower upfront cost and it’s easier to upgrade to a new model every few years
– useful for businesses that want to keep vehicles up-to-date or avoid owning outdated vehicles.
Cons: Financing a vehicle means committing to ongoing repayments. With a lease, you won’t own the vehicle, which means you can’t modify it to your liking and you must adhere to any usage conditions (for example, limits on kilometers or wear-and-tear). Ending a lease early can be costly – you may be required to pay for the full term even if you no longer need the car. With a loan or hire purchase, you take on the risks of ownership: the vehicle’s value may depreciate faster than you anticipate, and if you need to sell the vehicle mid-way, you’d have to pay out the remaining loan balance. Each option also has different implications for your balance sheet and financing: for instance, a leased vehicle isn’t recorded as an asset of your business, whereas a financed vehicle (loan or hire purchase) is your asset (with an associated liability).
Best for: Vehicle finance is useful for any Australian SME that needs business vehicles – from sole traders to companies managing a fleet. If owning the vehicle (and perhaps eventually having no ongoing payments) is important, a chattel mortgage or hire purchase is suitable. These are common for tradespeople, sales or service businesses that put a lot of mileage on vehicles and prefer ownership. If your business prefers to refresh vehicles frequently or avoid maintenance hassles, a lease might be more attractive, as it allows easy upgrade cycles (e.g. getting a new car every 2–3 years). Always consider how long you need the vehicle and your cash flow flexibility when choosing a vehicle finance option.
Leasing (Finance Lease vs Operating Lease)
Leasing is an asset finance option where your business rents the equipment or vehicle from a finance provider for a fixed period, instead of purchasing it outright. The lender (or leasing company) buys the asset on your behalf, and you pay a monthly lease fee for the right to use it. There are two main types of leases in Australia: finance leases and operating leases.
Finance Lease: In a finance lease, you commit to leasing the asset for a longer term (often most of the asset’s useful life). Your business takes on the risks and rewards of ownership – for example, you’re responsible for maintenance and you bear any loss in value – even though the lender legally owns the asset during the lease term. Typically, a finance lease will have an option for you to purchase the asset at the end of the term, usually by paying a residual amount (sometimes called a balloon payment). This structure is similar to a loan in economic effect: you get to use the asset long-term, and if you exercise the option, you’ll own it after the final payment. Finance leases are commonly used for high-value assets that a business wants to use right away without a full upfront purchase – for example, heavy machinery or specialised equipment – and they often feature relatively low interest rates because the lender’s risk is secured by the asset.
Operating Lease: In an operating lease, you rent the asset for a shorter period (less than its full useful life). The finance provider retains the risks and benefits of ownership – meaning at the end of the lease, you return the asset, and the lender takes the risk of reselling or disposing of it. Operating leases are closer to a rental agreement: you pay for the use of the asset for a set term, which is ideal for equipment that may become obsolete quickly or that you only need for a specific project or time frame. Many car leases offered to businesses are structured as operating leases (you simply hand back the car at lease end), and equipment like computers or tech devices that upgrade frequently are also suited to operating leases.
Pros: The primary advantage of leasing is a lower upfront cost – usually you don’t need a large deposit, just periodic payments. This frees up your working capital for other needs. With an operating lease, you avoid being stuck with outdated equipment; you can upgrade to newer assets as leases end. Lease payments are generally tax deductible as a business expense (since they are treated as rental payments), simplifying the accounting in some cases. Additionally, some operating leases come with maintenance included, which means less hassle for your business if the asset needs repairs during the lease term.
Cons: The main downside of leasing is that you do not build ownership equity in the asset (unless you have a finance lease and choose to buy at the end). Over the long run, leasing can be more expensive than buying, especially if you continually lease an asset for an extended period – you might end up paying as much as the asset’s purchase price (or more) yet never own it. There may also be restrictions in lease agreements – for example, mileage limits on vehicle leases or rules against customising equipment. If your business no longer needs the asset or wants to exit the lease early, you could face penalties or still be liable for the remaining lease payments. Lastly, while lease payments don't show up as a loan on your balance sheet, modern accounting standards may require finance leases to be recorded as liabilities, so consult your accountant on how it affects your financial statements.
Best for: Leasing works well for businesses that need equipment or vehicles for a limited time or that value flexibility and up-to-date assets. If your industry involves rapidly evolving technology (for example, IT firms or creative agencies needing high-end computers), an operating lease allows you to upgrade regularly without the burden of owning outdated gear. Finance leases can suit businesses that eventually want to own the asset but are currently focused on preserving cash – you get the immediate use and can decide later to purchase. Companies with tight cash flow or those that prefer to treat asset usage as an ongoing expense (avoiding large debts) also often prefer leasing.
Hire Purchase
A hire purchase (often called commercial hire purchase for businesses) is another form of asset finance where your business hires an asset with an agreement to buy it at the end of the term. Under a hire purchase agreement, the finance provider purchases the equipment or vehicle and then hires it to your business for a fixed period. You make regular payments (instalments) over the term, and when the final payment is made – including any final residual amount agreed – ownership of the asset transfers to your business. In effect, it’s like a rent-to-own plan: you get to use the asset while paying it off, and you end up owning it after completing the payments.
Pros: Hire purchase gives you immediate use of the asset without the full upfront cost, which helps conserve cash flow for other needs. You have the certainty of ownership at the end of the term – unlike a lease, there’s no doubt that you’ll own the item once all payments are done. As with an equipment loan, the interest component of your hire purchase payments and the depreciation of the asset can usually be claimed as tax deductions if the asset is used in your business. This makes hire purchase financially similar to taking out a loan, though the legal ownership passes to you only after the final payment. Hire purchase agreements can also be flexible in structuring payments: for example, you might negotiate a lower monthly payment with a larger "balloon" payment at the end, much like with loans, to suit your cash flow.
Cons: During the hire period, your business doesn’t legally own the asset – the lender does. This means you generally cannot sell or dispose of the asset until the hire purchase is completed (without the lender’s consent), as it’s technically not yours yet. If your needs change (say the equipment is no longer required or becomes obsolete before the term ends), you are still locked into the agreement or would have to pay it out early. Compared to an outright purchase, you will pay more overall due to interest. Also, if you default on payments, the financier can repossess the asset, and you’d lose the money already paid. Another consideration is that because you will own the asset eventually, you bear the risk of its value dropping during the term – if the market value falls significantly, you still owe the full remaining payments.
Best for: Hire purchase is typically beneficial for businesses that want to own the asset at the end but need to spread the cost over time. It’s commonly used for medium-priced assets such as commercial equipment, office furniture, or vehicles, where an upfront purchase could strain cash flows. For example, a restaurant might use a hire purchase to obtain new kitchen appliances, or a small logistics company might hire-purchase a delivery van. These businesses get the equipment immediately to generate income, and by the end of the term they fully own a useful asset.
Chattel Mortgage
A chattel mortgage is a term used in Australia to describe a specific type of asset finance where a business takes out a loan to purchase an asset and the asset itself serves as security for the loan. "Chattel" means movable property, so this typically refers to financing for vehicles or equipment (as opposed to property mortgages on real estate). With a chattel mortgage, your business owns the asset from the start of the loan, and the lender has a mortgage (a secured interest) over the asset until the loan is repaid. This arrangement is very similar to the equipment loan discussed earlier – in fact, many lenders simply call it an equipment loan or business vehicle loan. Chattel mortgages are one of the most popular ways for Australian businesses to finance vehicles and equipment, especially for SMEs.
The key difference between a chattel mortgage and other forms of asset finance like leasing or hire purchase is the ownership structure. In a hire purchase or finance lease, you don’t own the asset until the end of the term (or at all, in the case of an operating lease). In a chattel mortgage, you own the asset outright from day one, and you’re essentially borrowing money to pay for it, with the asset as collateral. Once you make all your loan repayments (and any balloon payment if applicable), the lender releases its security interest and the asset is fully yours with no encumbrance.
Pros: Chattel mortgages come with similar benefits to any secured business loan. Interest rates are typically lower than unsecured loans because the asset reduces the lender’s risk. You get immediate ownership and use of the asset, allowing you to put it to work in your business right away. For accounting purposes, the asset is on your books, and you can claim depreciation and interest expenses for tax purposes (assuming the asset is used to produce income). You also have flexibility in structuring the loan – you may choose fixed interest rates and set up a repayment schedule that suits your cash flow, including the option for a large final balloon payment to reduce regular installment amounts. This can be useful for managing cash flow while still planning to own the asset long-term. Additionally, if your business is registered for GST in Australia, you can typically claim the GST paid on the purchase of the asset upfront in your next Business Activity Statement, rather than over the life of a lease, which can be a cash flow advantage.
Cons: Since you own the asset from day one, you take on full responsibility for it immediately – maintenance, insurance, and the risk of it losing value. You also carry the loan liability on your balance sheet (the flip side of owning the asset). If your business situation changes and you want to get rid of the asset, you’ll need to sell it and clear the remaining loan (similar to any other loan, there can be payout costs or break fees if you want to end it early). A chattel mortgage might not be ideal if you only need an asset for a short term or you prefer not to handle asset disposal – in those cases, a lease could be more suitable. Finally, as with any secured loan, if you fail to meet your repayments, the lender can repossess the asset (since it’s collateral) and your credit will suffer.
Best for: Chattel mortgages are well-suited to businesses that want the advantages of owning the asset straight away, and plan to keep the asset for a long time. They are particularly popular for financing business vehicles (often marketed simply as business car loans) and for high-value equipment that the business intends to use over many years. Australian SMEs that have sufficient cash flow to meet loan repayments and want to claim ownership benefits (like tax depreciation or the instant asset write-off, if applicable) often choose chattel mortgages. For example, a growing trade business might use a chattel mortgage to buy a new work ute or van – the vehicle becomes the company’s asset from day one, and the financing is structured to be affordable over a few years.
Conclusion – Find the Right Option for Your Business
Choosing the right asset finance option comes down to your business’s needs and financial situation. It’s important to consider factors like: Do you need to own the asset or just use it? How long do you need it for? What can your cash flow support in terms of repayments? Each option – from equipment loans and chattel mortgages to leasing and hire purchase – has its own advantages and trade-offs. By understanding these, you can make an informed decision that helps your business grow without overstretching your budget.
If you’re unsure which asset financing route is best, it can help to speak with a finance professional. Contact Finwave to discuss your options – we can guide you through the various asset finance solutions available in Australia and help tailor a financing strategy that suits your small business. With the right finance in place, you’ll be able to secure the equipment or vehicles you need to take your business to the next level.
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